Question 2: The purpose of depreciation is to have the balance sheet report the current value of an asset.

Here are the answers to the True/False questions:

Question 2: The purpose of depreciation is to have the balance sheet report the current value of an asset.

• Depreciation allocates the cost of an asset over its useful life, not to reflect its current market value.
• False

Question 3: Depreciation Expense reflects an allocation of an asset's original cost rather than an allocation based on the economic value that is being consumed.

• Depreciation systematically allocates the historical cost of an asset over its useful life.
• True

Question 4: An asset's useful life is the same as its physical life?

• Useful life is an estimate of how long an asset will be used by a company, which can be shorter than its physical life due to obsolescence or economic factors.
• False

Question 5: One company might depreciate a new computer over three years while another company might depreciate the same model computer over five years...and both companies are right.

• Useful life is an estimate, and different companies may have different, valid estimates based on their specific usage and circumstances.
• True

Question 6: Depreciation Expense is shown on the income statement in order to achieve accounting's matching principle.

• Depreciation expense is recognized to match the cost of using an asset with the revenues it helps generate in the same accounting period.
• True

Question 7: Accumulated Depreciation will appear as a deduction within the section of the balance sheet labelled as Property, Plant and Equipment.

• Accumulated depreciation is a contra-asset account that reduces the book value of assets on the balance sheet.
• True

Question 8: If a company continues to use equipment past the useful life that was assumed in determining the depreciation, there will be no Depreciation Expense in those additional years.

• Once an asset is fully depreciated, no further depreciation expense is recorded, even if the asset remains in use.
• True

Question 9: A company may depreciate equipment over 10 years on a straight-line basis for its financial statements, but might use an accelerated method of depreciation over a shorter time period on its income tax return?

• Companies often use different depreciation methods and useful lives for financial reporting and tax purposes, which is permissible.
• True

Question 10: Depreciation Expense is sometimes referred to as a noncash expense.

• Depreciation is an expense that does not involve a current outflow of cash.
• True

Question 11: Both Land and Land Improvements will generally be depreciated.

• Land is generally not depreciated because it is considered to have an indefinite useful life, while land improvements are depreciated.
• False